Natural Foods Merchandiser

Wild Oats Wins Backyard Battle

Wild Oats Markets Inc. has aced Whole Foods Market Inc. out of a plum development site in Boulder, Colo., where it plans to build a flagship store as well as its corporate headquarters.

On June 30, Wild Oats and Westcor, developer of the Twenty Ninth Street mixed-use project, announced the signing of a letter of intent to build ?at least 35,000 square feet? of retail space and an 80,000-square-foot corporate headquarters in a prime location in Boulder.

City officials had lobbied hard to keep Wild Oats? headquarters and 275 employees in Boulder, where it was founded in 1987. ?Westcor told us it was very competitive,? said Wild Oats spokeswoman Sonja Tuitele. ?We?re just happy we won.?

Tracey Gotsis, senior vice president for development marketing at Westcor, said the developer talked to ?virtually every grocery chain? about the Twenty Ninth Street site. ?Specialty grocery does really well in Boulder,? she said.

Wild Oats? desire to site a flagship supermarket and its corporate headquarters together intrigued the developer, Gotsis said. A tour of Wild Oats? newest Colorado store, a 32,000-square-foot flagship in Superior, a suburb of Boulder, sealed the deal.

This and other recent news has some naturals industry observers convinced that Wild Oats has started swinging for the fences in a way not seen in recent years from the No. 2 naturals supermarket chain. It closed a $116 million convertible debt offering this spring, with which it will accelerate expansion and remodeling plans for both the Wild Oats Natural Marketplace and Henry?s Farmers Market concepts.

It expects to open 12 to 15 new stores in 2004, 20 to 25 in 2005, and 40 new stores per year in 2006 and beyond, Chief Financial Officer Ed Dunlap told the Piper Jaffray Consumer Conference in New York in June.

?There?s likely to be more Henry?s than Oats? opening in the coming years, with an emphasis on greater density in existing markets, Dunlap said. ?They can operate in proximity to each other because they are two unique and distinct formats.?

Dunlap described the naturals market as ?fragmented,? with only 11 percent of sales captured by Wild Oats and Whole Foods, signaling that acquisitions may be in the offing.

Oats? transition from primary distributor Tree of Life back to United Natural Foods Inc. has gone ?better than forecast,? Dunlap said. A new perishables warehouse in southern California has the capacity to serve all the company?s stores west of the Mississippi.

Wild Oats intends to capture share from conventional grocers as consumers move to naturals and organics. ?[The conventional grocers] don?t know how to service this sector at all,? Dunlap told the Wall Street audience.

Dunlap Also noted at the investor conference that Wild Oats has reduced its debt from $125 million two years ago to zero today, and has $50 million to $60 million cash on hand. Same-store sales rose 8.5 percent in the first quarter of 2004, and earnings per share grew 60 percent.

The Boulder office-retail combo will mean ?we?ll have kind of a lab,? Tuitele said. Vendors who visit Wild Oats? headquarters will be able to ?walk across the mall? for a hands-on discussion of how products are actually merchandised on real store shelves.

The company will not close any of its three small Boulder stores, including the original Wild Oats or the original Alfalfa?s Market.

The Twenty Ninth Street project sits on 65 acres occupied by the empty husk of a mall. Westcor plans a combination of retail, office space, restaurants and entertainment, Gotsis said, focusing on ?first-to-the-market, unique retailers.?

Boulder real estate watchers said Whole Foods wanted the Twenty Ninth Street site to replace its existing store three blocks away, which, despite parking problems, is one of the top-grossing stores in the chain. Austin, Texas-based Whole Foods did not comment, based on a policy of not speaking to trade media.

But industry watchers may recall that Whole Foods Chief Executive Officer John Mackey sent Mike Gilliland, his former counterpart at Wild Oats, a copy of Risk (?The Board Game of World Domination?) when Colorado?s first Whole Foods opened in Boulder in 1998. The 39,313-square-foot store was the largest in the chain at that time and a stone?s throw from Wild Oats headquarters.

Wild Oats employees viewed the Twenty Ninth Street announcement as a major victory, Tuitele said. ?It?s a testament to how far we?ve come in the last three years under [President and CEO] Perry Odak?s leadership.?

?This is a company that?s rapidly changing,? said Eric Larson, senior food analyst at Piper Jaffray. ?We?re seeing meaningful progress today in their fundamentals.?

Natural Foods Merchandiser volume XXV/number 8/p. 9

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